Exhibit 10.24
THIS WARRANT (AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT) ARE
SUBJECT TO AN INVESTMENT AGREEMENT DATED DECEMBER 31, 1996, AS AMENDED AND A
STOCKHOLDERS AGREEMENT DATED AS OF DECEMBER 31, 1996, COPIES OF WHICH ARE ON
FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED TO THE
HOLDER ON REQUEST TO THE SECRETARY OF THE CORPORATION. SUCH INVESTMENT
AGREEMENT AND STOCKHOLDERS AGREEMENT PROVIDE, AMONG OTHER THINGS, FOR CERTAIN
RESTRICTIONS ON VOTING, SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES EVIDENCED BY THIS WARRANT AND THAT THE HOLDER
HAS RIGHTS TO REQUIRE REPURCHASE BY THE CORPORATION UPON THE OCCURRENCE OF
CERTAIN EVENTS. THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN
REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THE SAME ARE REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF THE QUIZNO'S CORPORATION
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Issued Date: October 31, 1997
THIS CERTIFIES THAT, for value received, Retail & Restaurant Growth
Capital, L.P., a Delaware limited partnership ("Holder"), is entitled, subject
to the provisions and upon the terms and conditions hereinafter set forth, to
subscribe for and purchase up to 42,209 shares (as adjusted pursuant to the
provisions hereof), (the "Number") of the fully paid and nonassessable Common
Stock, par value $.001, of THE QUIZNO'S CORPORATION, a Colorado corporation
(the "Company" or the "Corporation"), for a price per share (the "Warrant
Price") equal to $5.00 (as adjusted, pursuant to the provisions hereof).
As used herein, the term "Shares" shall mean the Company's presently
authorized Common Stock, or any stock into or for which such Common Stock
shall have been or may hereafter be converted or exchanged pursuant to the
Amended and Restated Articles of Incorporation of the Company as from time to
time amended as provided by law and in such Articles (hereinafter the
"Charter"), the term "Note" shall mean that certain Amended and Restated
Senior Subordinated Convertible Note due 2001 issued by the Corporation to
Retail & Restaurant Growth Capital, L.P. as of December 31, 1996, and the term
"Grant Date" shall mean October 31, 1997. Capitalized terms used and not
defined herein shall have the meanings set forth in a certain Investment
Agreement dated as of December 31, 1996 by and between the Company and Retail
& Restaurant Growth Capital, L.P., as amended (the "Investment Agreement").
1. Method of Exercise.
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1.1 Standard Method. The purchase right represented by this Warrant
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may be exercised by the holder hereof, in whole or in part and from time to
time, by either, at the election of the holder hereof, (a) the surrender of
this Warrant (with the notice of exercise form attached hereto as Exhibit A-1
duly executed) at the principal office of the Company and by the payment to
the Company, by check or by wire transfer, of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Shares then
being purchased or (b) if in connection with a registered public offering of
the Company's securities (provided that such offering includes Shares and that
the holder shall have elected to participate therein pursuant to the exercise
of the registration rights referred to in Section 6 hereof), the surrender of
this Warrant (with the notice of exercise form attached hereto as Exhibit A-2
duly executed) at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company and any underwriter, in
the case of an underwritten registered public offering, for payment to the
Company either by certified or bank check or by wire transfer from the
proceeds of the sale of Shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per Share
multiplied by the number of Shares then being purchased; however,
notwithstanding the cash payment requirements set forth in this Section 1.1,
the Holder shall be entitled to use the net issue exercise option as
hereinafter provided in Section 1.2. The person or persons in whose name(s)
any certificate(s) representing Shares shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall
be treated for all purposes as the record holder(s) of, the Shares represented
thereby (and such Shares shall be deemed to have been issued) immediately
prior to the close of business on the date or dates upon which this Warrant is
exercised and the then applicable Warrant Price paid. In the event of any
exercise of the rights represented by this Warrant, certificates for the
Shares of stock so purchased shall be delivered to the holder hereof as soon
as possible and in any event within ten days of receipt of such notice and
payment of the then applicable Warrant Price and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised and containing the same terms and conditions of this Warrant shall
also be issued to the holder hereof as soon as possible and in any event
within such ten-day period.
1.2 Net Issue Exercise. In lieu of exercising this Warrant for cash,
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holder may elect to receive Shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election in which event the
Company shall issue to Holder that number of Shares computed using the
following formula:
X= Y(A-B) A
------
Where
X = the number of Shares to be issued to Holder.
Y = the number of Shares purchasable under this Warrant (or such lesser
amount as equals the number of Shares which could be purchased with the
portion of this Warrant being canceled).
A = the Current Market Price (as defined below) of one Share.
B = the Warrant Price (as adjusted to the date of such calculations).
2. Adjustment in Number Upon Payment of Dividends and Realization of
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Financial Requirements.
-----------------------
2.1 Adjustments in Months 1 through 12
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(a) Subject to the provisions of clause (b) below, on the first
business day of each month in the period beginning November 1, 1997 and ending
October 31, 1998 ("Year 1"), if and only if, on that date, all monthly
dividends (the "Class B Dividends") are paid to Holder as a holder of the
Company's Class B Cumulative Preferred Stock ("Class B Stock"), then the
Number shall be reduced by 787 shares for such month;
(b) All reductions in the Number made under Section 2.1(a) shall be
rescinded and annulled, and the Number shall immediately be increased to the
Number as of October 31, 1997, as adjusted pursuant to Section 4 below, if
(i) within five (5) days of any dividend payment date during Year 1 the
dividend payment is not made; or
(ii) on December 31, 1998 the Company's net income allocable to common
stockholders does not exceed $900,000.
2.2 Adjustments in Months 13 through 24
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(a) Subject to the provisions of clause (b) below, on the first
business day of each month in the period beginning November 1, 1998 and ending
October 31, 1999 ("Year 2"), if and only if, on that date, all Class B
Dividends are paid to Holder as a holder of the Company's Class B Stock, then
the Number shall be reduced by 583 shares for such month;
(b) All reductions in the Number made under Section 2.2(a) shall be
rescinded and annulled, and the Number shall immediately be increased to the
Number as of October 31, 1998, as adjusted pursuant to Section 4 below, if
(i) within five (5) days of any dividend payment date during Year 2 the
dividend payment is not made; or
(ii) on December 31, 1999 the Company's net income allocable to common
stockholders does not exceed $1,500,000.
2.3 Adjustments in Months 25 through 36
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(a) Subject to the provisions of clause (b) below, on the first
business day of each month in the period beginning November 1, 1999 and ending
October 31, 2000 ("Year 3"), if and only if, on that date, all Class B
Dividends are paid to Holder as a holder of the Company's Class B Stock, then
the Number shall be reduced by 431 shares for such month;
(b) All reductions in the Number made under Section 2.3(a) shall be
rescinded and annulled, and the Number shall immediately be increased to the
Number as of October 31, 1999, as adjusted pursuant to Section 4 below, if
(i) within five (5) days of any dividend payment date during Year 3 the
dividend payment is not made; or
(ii) on December 31, 2000 the Company's net income allocable to common
stockholders does not exceed $2,000,000.
2.4 Reporting of Adjustments under this Section. Within three
---------------------------------------------
business days of the Company's Form 10-K or Form 10-KSB is due for filing with
the Securities and Exchange Commision, and at any time upon the Holder's
request, the Company shall issue to the Holder a notice (the "Notice"),
certified by the Company's chief financial officer, (i) indicating the
Company's net income to stockholders for the fiscal year just ended, (ii)
stating whether or not all monthly Class B Dividends were paid to the Holder,
and (iii) indicating the reduction to the Number, if any, made to date
pursuant to this Section 2. The obligations under this Section shall expire
after the Corporation delivers the Notice for the fiscal year ended December
31, 2000.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
---------------------------------------
issued upon the exercise of the rights represented by this Warrant, and all
shares into which such Shares are convertible will, upon issuance, be fully
paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by the Warrant may be exercised, the Company will at all times
have authorized and reserved for the purpose of issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of Shares to
provide for the exercise of the unexercised rights represented by this
Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
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kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows: The "Warrant Price" shall initially
be $5.00 and shall be adjusted and readjusted from time to time as provided in
this Warrant.
(a) Adjustments to Warrant Price.
-------------------------------
(i) Stock Dividends, Subdivisions and Combinations, Non Pro-Rata
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Repurchases. In case at any time or from time to time the Corporation shall:
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(A) take a record of the holders of its Other Stock (as defined
below) for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Other Stock (other than Common Stock), or
(B) subdivide its outstanding shares of Other Stock into a larger
number of shares of Other Stock, or
(C) combine its outstanding shares of Other Stock into a smaller
number of shares of Other Stock,
then the Warrant Price in effect immediately after the happening of any such
event shall be proportionately decreased, in case of the happening of events
described in subparagraphs A or B above, or proportionately increased, in case
of the happening of events described in subparagraph C above. "Other Stock"
shall mean the Common Stock and shall also include all other stock of the
Corporation of any other class other than Convertible Stock. A
reclassification of the Other Stock into shares of Other Stock and shares of
any other class of stock shall be deemed a distribution by the Corporation to
the holders of its Other Stock of such shares of such other class of stock
within the meaning of this Subsection and, if the outstanding shares of Other
Stock shall be changed into a larger or smaller number of shares of Other
Stock as a part of such reclassification, shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Other Stock
within the meaning of this Subsection a(i).
(ii) Repurchase of Other Stock. In case at any time or from time to
-------------------------
time, the Corporation shall (except as hereinafter provided) repurchase any
Other Stock (the "Repurchased Stock"), then upon the consummation of such
repurchase the Warrant Price then in effect shall be decreased to an amount
determined by multiplying the Warrant Price in effect immediately prior to
such adjustment by a fraction, (x) the numerator of which is the price paid
per share of the Repurchased Stock, and (y) the denominator of which is the
Current Market Price per share of Common Stock on the date immediately prior
to such repurchase (after giving effect to any stock splits, stock dividends
or other stock repurchases between the date of such repurchase and the date on
which such calculation is made); provided, however, that if the numerator of
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such fraction is greater than the denominator of such fraction, then no
adjustment to the Warrant Price shall be made. No adjustment of the Warrant
Price shall be made under this Subsection upon the repurchase of the
Repurchased Stock if such repurchase, together with all repurchases during the
previous twelve (12) calendar months, is a repurchase of less than the sum of
(1) 5% of the issued and outstanding Other Stock determined as of the date of
such repurchase, plus (2) repurchases of stock options and Other Stock
----
underlying such stock options in a transaction or series of transactions
during such twelve (12) month period not exceeding $50,000 in the aggregate.
(iii) Issuance of Additional Shares of Other Stock. "Additional
--------------------------------------------
Shares of Other Stock" shall mean all shares of Other Stock issued by the
Corporation after October 31, 1997 other than (i) the shares of Common Stock
issued to a holder of Convertible Stock upon conversion of such Convertible
Stock, and (ii) Permitted Common Stock Issuances. In case at any time or from
time to time, the Corporation shall (except as hereinafter provided) issue,
whether in connection with the merger of a corporation into the Corporation or
otherwise, any Additional Shares of Other Stock for a consideration per share
less than the Warrant Price then in effect (as so adjusted from time to time
for additional issuances, reductions and other adjustments to the number of
shares of Common Stock outstanding, including without limitation stock splits,
stock dividends, reverse stock splits, pro rata repurchases, and any other
good faith transfer of securities or other transaction which results in an
increase or decrease in the number of shares of Common Stock outstanding,
(such amount per share, the "Minimum Issue Price") on the Computation Date
(determined as set forth below), then the Warrant Price shall be adjusted to
be that number determined by multiplying the Warrant Price in effect
immediately prior to such adjustment by a fraction (x) the numerator of which
shall be the number of shares of Other Stock outstanding prior to the issuance
of the Additional Shares of Other Stock, plus the number of shares of Other
Stock which the aggregate consideration for the total number of such
Additional Shares of Other Stock so issued would purchase at the Minimum Issue
Price per share of Common Stock and (y) the denominator of which shall be the
number of shares of Other Stock outstanding after giving effect to the
issuance of such Additional Shares of Other Stock so issued. The provisions
of this Subsection shall not apply to any issuance of Additional Shares of
Other Stock for which an adjustment is provided under Subsection 4(a)(i). No
adjustment of the Warrant Price shall be made under this Subsection upon the
issuance of any Additional Shares of Other Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously have been made
upon the issuance of such warrants, options or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any warrant
or other rights therefor) pursuant to Subsection (iv) or (v) of Subsection
4(a). "Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities, which are convertible into or exchangeable for
Additional Shares of Other Stock, either immediately or upon the arrival of a
specified date or the happening of a specified event. For purposes of this
Subsection, the "Computation Date" shall be the earlier of (x) the date on
which the Corporation shall enter into a firm contract for the issuance of
such Additional Shares of Other Stock, or (y) the date of actual issuance of
such Additional Shares of Other Stock.
(iv) Issuance of Warrants, Options or Other Rights. In case at any
---------------------------------------------
time or from time to time, the Corporation shall take a record of the holders
of its Other Stock for the purpose of entitling them to receive a distribution
of, or shall otherwise issue, any warrants, options or other rights to
subscribe for or purchase any Additional Shares of Other Stock or any
Convertible Securities (other than Permitted Common Stock Issuances and Common
Stock issuable upon conversion of Convertible Stock), and the consideration
per share for which Additional Shares of Other Stock may at any time
thereafter be issuable pursuant to such warrants, options or other rights or
pursuant to the terms of such Convertible Securities shall be less than the
Minimum Issue Price then in effect on the Computation Date (as determined
below), then the Warrant Price shall be adjusted as provided in the second
sentence of Subsection 4(a)(iii). Such adjustment shall be made on the basis
that (i) the consideration per share for which such Additional Shares of Other
Stock may be issued equals a fraction, (x) the denominator of which is the
maximum number of Additional Shares of Other Stock issuable pursuant to all
such warrants, options or other rights or necessary to effect the conversion
or exchange of all such Convertible Securities, and (y) the numerator of which
is the minimum consideration received and receivable by the Corporation for
such Additional Shares of Other Stock pursuant to such warrants, options or
other rights or pursuant to the terms of such Convertible Securities, (ii) the
maximum number of Additional Shares of Other Stock issuable pursuant to all
such warrants, options or other rights or necessary to effect the conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued as of the Computation Date (determined as set forth in the last
sentence of this Subsection), and (iii) the aggregate consideration for such
maximum number of Additional Shares of Other Stock shall be deemed to be the
minimum consideration received and receivable by the Corporation for the
issuance of such Additional Shares of Other Stock pursuant to such warrants,
options or other rights or pursuant to the terms of such Convertible
Securities.
For purposes of this Subsection, the "Computation Date" shall be the
earliest of (a) the date on which the Corporation shall take a record of the
holders of its Other Stock for the purpose of entitling them to receive any
such warrants, options or other rights, (b) the date on which the Corporation
shall enter into a firm contract for the issuance of such warrants, options or
other rights, and (c) the date of actual issuance of such warrants, options or
other rights.
(v) Issuance of Convertible Securities. In case at any time or from
----------------------------------
time to time, the Corporation shall take a record of holders of the Other
Stock for the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any Convertible Securities (other than Permitted Common Stock
Issuances, and Convertible Stock) and the consideration per share for which
additional shares of other stock may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the
Minimum Issue Price then in effect on the Computation Date (as determined
below), then the Warrant Price shall be adjusted as provided in the second
sentence of Subsection 4(a)(iii). Such adjustment shall be made on the basis
that (i) the amount of consideration per share for which such Additional
Shares of Other Stock may be issued equals a fraction (x) the denominator of
which is the maximum number of Additional Shares of Other Stock necessary to
effect the conversion or exchange of all such Convertible Securities, and (y)
the numerator of which shall be the minimum consideration received and
receivable by the Corporation for the issuance of such Additional Shares of
Other Stock pursuant to the terms of such Convertible Securities, (ii) the
maximum number of Additional Shares of Other Stock necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the Computation Date (determined as set forth in the
penultimate sentence of this Subsection), and (iii) the aggregate
consideration for such maximum number of Additional Shares of Other Stock
shall be deemed to be the minimum consideration received and receivable by the
Corporation for issuance of such Additional Shares of Other Stock pursuant to
the terms of such Convertible Securities.
For purposes of this Subsection, the "Computation Date" shall be the
earliest of (a) the date on which the Corporation shall take a record of the
holders of its Other Stock for the purpose of entitling them to receive any
such Convertible Securities, (b) the date on which the Corporation shall enter
into a firm contract for the issuance of such Convertible Securities, and (c)
the date of actual issuance of such Convertible Securities. No adjustment of
the Warrant Price shall be made under this Subsection upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights therefor, if any
such adjustment shall previously have been made upon the issuance of such
warrants, options or other rights pursuant to Subsection 4(a)(iv).
(vi) Superseding Adjustment of Warrant Price. If at any time after
---------------------------------------
any adjustment of the Warrant Price shall have been made pursuant to the
foregoing Subsections 4(a)(iv) or 4(a)(v) on the basis of the issuance of
warrants, options or other rights or the issuance of other Convertible
Securities or after any new adjustment of the Warrant Price shall have been
made pursuant to this Subsection 4(a)(vi),
(A) such warrants, options or other rights or the right of conversion
or exchange in such other Convertible Securities shall expire, and a portion
of such warrants, options or rights, or the right of conversion or exchange in
respect of a portion of such other Convertible Securities, as the case may be,
shall not have been exercised, or
(B) the consideration per share for which Additional Shares of Other
Stock are issuable pursuant to such warrants, options, or rights or the terms
of such other Convertible Securities, shall be increased solely by virtue of
provisions therein contained for an automatic increase in such consideration
per share upon the arrival of a specified date or the happening of a specified
event,
such previous adjustment shall be rescinded and annulled and the Additional
Shares of Other Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants,
options or other rights, or other Convertible Securities on the basis of:
(1) treating the number of Additional Shares of Other Stock, if any,
theretofore actually issued or issuable pursuant to the previous exercise of
such warrants, options or other rights or such right of conversion or
exchange, as having been issued on the date or dates of such issuance as
determined for purposes of such previous adjustment and for the consideration
actually received therefor, and
(2) treating any such warrants, options or other rights or any such
other Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for such Additional Shares of Other Stock issuable
under such warrants, options or other rights or other Convertible Securities,
and, if and to the extent called for by the foregoing provisions of this
Subsection 4(a) on the basis aforesaid, a new adjustment of the Warrant Price
shall be made, and such new adjustment shall supersede the previous adjustment
so rescinded and annulled. If any such superseding adjustment of the Warrant
Price is made after the exercise of this Warrant by a former Holder of this
Warrant in lieu of such adjustment, if, and only if, such former Holder owns
shares of Common Stock of the Corporation obtained upon exercise of this
Warrant, the Corporation shall have the option to purchase the number of
shares of Common Stock from such former Holder equal to the difference between
(x) the number of shares of Common Stock which such former Holder received
upon exercise prior to the adjustment, and (y) the number of shares of Common
Stock which such former Holder would have received on exercise had such
adjustment been made prior to exercise. The purchase price per share of such
stock shall be $0.01 per share.
(vii) Other Provisions Applicable to Adjustments Under this Section.
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The following provisions shall be applicable to the making of adjustments of
the Warrant Price hereinbefore provided for in this Subsection 4(a):
(A) Treasury Stock. The sale or other disposition of any issued
--------------
shares of Other Stock owned or held by or for the account of the Corporation
shall be deemed an issuance thereof for purposes of this Subsection 4(a).
(B) Computation of Consideration. To the extent that any Additional
----------------------------
Shares of Other Stock or any Convertible Securities or any warrants, options
or other rights to subscribe for or purchase any Additional Shares of Other
Stock or any Convertible Securities shall be issued solely for cash
consideration, the consideration received by the Corporation therefor shall be
deemed to be the amount of cash received by the Corporation therefor, or, if
such Additional Shares of Other Stock or Convertible Securities are offered by
the Corporation for subscription, the subscription price, or, if such
Additional Shares of Other Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription offering,
the initial public offering price, in any such case excluding any amounts paid
or receivable for accrued interest or accrued dividends, and after deductions
for any compensation, underwriting discounts, placement fees or funding or
financing commitment fees (but before deduction for any other expenses) paid
or incurred by the Corporation for and in the underwriting of, or otherwise in
connection with, the issue thereof. To the extent that such issuance shall be
for a consideration other than solely for cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
determined in good faith by the Corporation's Board of Directors. The
consideration for any Additional Shares of Other Stock issuable pursuant to
any warrants, options or other rights to subscribe for or purchase the same
shall be the consideration received or receivable by the Corporation for
issuing such warrant, options or other rights, plus the additional
consideration payable to the Corporation upon the exercise of such warrants,
options or other rights. The consideration for any Additional Shares of Other
Stock issuable pursuant to the terms of any Convertible Securities shall be
the consideration received or receivable by the Corporation for issuing any
warrants, options or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Corporation in respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the
Corporation upon the exercise of the right of conversion or exchange in such
Convertible Securities.
(C) When Adjustments to be Made. The adjustments required by the
---------------------------
preceding Subsections of this Subsection 4(a) shall be made whenever and as
often as any specified event requiring an adjustment shall occur, except that
no adjustment of the Warrant Price that would otherwise be required shall be
made (except in the case of a subdivision or combination of shares of the
Other Stock, as provided for in Subsection 4(a)(i)) unless and until such
adjustment, either by itself or with other adjustments not previously made,
adds or subtracts at least 1% to the Warrant Price, as determined in good
faith by the Board of Directors of the Corporation. Any adjustment
representing a change of less than such minimum amount shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this Subsection 4(a) and not previously made, would result in a
minimum adjustment. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence, All calculations made under this Subsection shall be made to the
nearest cent. Notwithstanding any other provision of this Warrant, and except
for a combination of shares or other adjustment pursuant to Section 4(c)(i),
no adjustment to the Warrant Price shall be made which causes the Warrant
Price to be increased; and once the Warrant Price is adjusted downward, it
shall not be readjusted upward except as provided in Section 4(a)(vi).
(D) Fractional Interests. In computing adjustments under this
---------------------
Subsection 4(a), fractional interests in Other Stock shall be taken into
account to the nearest one-thousandth of a share.
(E) When Adjustment not Required. If the Corporation shall take a
----------------------------
record of the Holders of its Other Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution thereof to shareholders, legally
abandon its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then (i) thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled, or (ii) in the event that any
such adjustment previously made in respect of such taking of record cannot be
rescinded or annulled as a result of the conversion of this Warrant after the
taking of such record occurs, in lieu of such recision or annulment of the
adjustment, if the Warrant was exercised by such former Holder, and if such
former Holder owns shares of Common Stock of the Corporation obtained upon
exercise of this Warrant, the Corporation shall have the option to purchase
the number of shares of Common Stock from such former Holder equal to the
difference between (x) the number of shares of Common Stock which such former
Holder had received upon conversion after such record date, and (y) the number
of shares of Common Stock which such former Holder would have received on
conversion had such adjustment been annulled or rescinded prior to conversion.
The purchase price per share of such Common Stock shall be $.01 per share.
(viii) Merger, Consolidation or Disposition of Assets. In case the
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Corporation shall merge or consolidate into another corporation, and such
transaction does not constitute an Event of Default (or the Payee waives its
right to accelerated payment under the Investment Agreement) or shall sell,
transfer or otherwise dispose of all or substantially all of its property,
assets or business to another corporation and pursuant to the terms of such
merger, consolidation or disposition, shares of common stock of the successor
or acquiring corporation (or any parent thereof) are to be received by or
distributed to the holders of Other Stock of the Corporation, then the Holder
of this Warrant shall have the right thereafter to receive, upon conversion of
this Warrant, shares of common stock equal to the number of shares of common
stock of the successor or acquiring corporation receivable upon or as a result
of such merger, consolidation or disposition of assets had the Holder of this
Warrant converted it into Common Stock of the Corporation immediately prior to
such event. If, pursuant to the terms of such merger, consolidation or
disposition of assets, any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants, options or other
subscription or purchase rights) are to be received by or distributed to the
holders of Other Stock of the Corporation (whether in addition to common stock
of the successor or acquiring corporation, or any parent thereof, or
otherwise) the Warrant Price in effect shall be adjusted to that number
determined by multiplying the Warrant Price then in effect by a fraction (x)
the numerator of which shall be the Current Market Price per share of Common
Stock immediately prior to the closing of such merger, consolidation or
disposition minus the portion applicable to one share of Common Stock of any
such cash so distributable and of the fair value of any such shares of stock
or other securities or property so received or distributed, and (y) the
denominator of which shall be the Current Market Price per share of Common
Stock immediately prior to the closing of such merger, consolidation or
disposition. The fair value of any such shares of stock or other securities
or property shall be determined pursuant to the Valuation Procedure. In case
of any such merger, consolidation or disposition of assets, the successor or
acquiring corporation shall expressly assume the due and punctual observance
and performance of each and every covenant and condition hereof to be
performed and observed by the Corporation and all of the obligations and
liabilities hereunder, subject to such modification as shall be necessary to
provide for adjustments to the Warrant Price which shall be as nearly
equivalent as practicable to the adjustments provided for in this Subsection
4(a). For the purposes of this Subsection 4(a)(viii), "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class, which is not preferred as to dividends or assets over any other
class of stock of such corporation and which is not subject to redemption, and
shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening of
a specified event, and any warrants, options or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Subsection shall
similarly apply to the successive mergers, consolidations or dispositions of
assets.
(b) Adjustment to Number. At the time the Warrant Price is adjusted,
--------------------
the Number shall also be adjusted by multiplying the Number immediately prior
to the adjustment by a fraction the numerator of which is the Warrant Price
immediately prior to the adjustment and the denominator of which is the
adjusted Warrant Price.
(c) No Impairment. The Corporation will not through any
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reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of
the Holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Corporation (i) will not permit the par value
of any shares of stock at the time receivable upon the exercise of this
Warrant to exceed the Warrant Price then in effect, (ii) will take all such
action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid nonassessable shares of stock on the
exercise of this Warrant, and (iii) will not take any action which results in
any adjustment of the Warrant Price if the total number of shares of Common
Stock issuable after the action upon the exercise of this Warrant and all
other warrants, options and other right to acquire Common Stock will exceed
the total number of shares of Common Stock then authorized by the Charter and
available for the purpose of issue upon such exercise.
(d) Certificate as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Warrant Price and the Number pursuant to
this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
the Holder a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (i) the consideration received or to be
received by the Corporation for any Additional Shares of Other Stock issued or
sold or deemed to have been issued, (ii) the number of shares of Other Stock
then outstanding or deemed to be outstanding, and (iii) the Warrant Price and
the Number in effect immediately prior to such issue or sale and as adjusted
and readjusted on account thereof, showing how each was calculated. The
Corporation shall, as promptly as practicable following its receipt of the
written request, but in any event within five Business Days after receipt of
such written request, of the Holder furnish or cause to be furnished to the
Holder a like certificate setting forth (i) the Warrant Price and Number at
the time in effect, showing how each was calculated, and (ii) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of this Warrant.
(e) Notices of Record Date. In the event of any taking by the
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Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid
in previous quarters) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to the Holder at least thirty days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
(f) Common Stock Reserved. The Corporation shall at all times
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reserve and keep available out of its authorized but unissued Common Stock
such number of shares of Common Stock as shall from time to time be sufficient
to effect conversion of this Warrant.
(g) Closing of Books. The Corporation will not close its books
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against the permitted transfer of this Warrant or its exercise.
(h) Registration; Transfer Taxes. The Corporation shall keep at its
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principal office (or such other place as the Corporation reasonably
designates) a register for the registration of this Warrant. Upon the
surrender of this Warrant at such place, the Corporation shall, at the request
of the Holder execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the amount of this Warrant
represented by the surrendered Warrant (and the Corporation forthwith shall
cancel such surrendered Warrant), subject to the requirements of applicable
securities laws. Each such new Warrant shall be registered in such name and
shall represent such amount as shall be requested by the Holder and shall be
substantially identical in form to this Warrant. The issuance of new Warrants
shall be made without charge to the Holder for any issuance tax in respect of
any transfer involved in the issuance and delivery of any Warrant in a name of
(i) the Holder, or (ii) any affiliate of the Holder.
(i) Definitions. The following terms shall have the following
-----------
meanings, which meanings shall be equally applicable to the singular and
plural forms of such terms:
"Business Day" means any day which is not a Saturday or a Sunday or a
public holiday or a day on which banks are required or permitted to close
under the laws of the State of California.
"Common Stock" means the Common Stock of the Corporation, par value
$0.001.
"Convertible Securities" shall have the meaning assigned to it in Section
4(a)(iii).
"Convertible Stock" means the Corporation's Class A Cumulative
Convertible Preferred Stock, par value $0.001 per share, outstanding on
October 31, 1997, the Corporations Class B Cumulative Preferred Stock, par
value $0.001 per share outstanding on October 31, 1997 and the Corporation's
Class C Cumulative Convertible Preferred Stock, par value $0.001 per share,
outstanding on October 31, 1997.
"Current Market Price" per share of Common Stock at the date herein
specified, shall be deemed to be the average of the Closing Prices for ten
consecutive Business Days immediately prior to the day in question or, if no
Closing Price is reported, the average of the closing bid and asked prices.
"Closing Prices" for each such Business Day shall be the last sale price
reported on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") on the preceding Business Day or, if the Common
Stock is an issue for which last sale prices are not reported on NASDAQ, the
closing bid quotation on such day (the closing bid quotation for a given day
shall be the highest bid quotation as quoted in any of The Wall Street
Journal, the national Quotation Bureau pink sheets, quotation sheets of
registered market makers and, if necessary, dealer's telephone quotations),
but, in each of the preceding two cases, if the relevant NASDAQ price or
quotation did not exist on such day, then the price or quotation on the next
preceding Business Day in which there was such a price or quotation.
"Other Stock" shall have the meaning assigned to it in Section 4(a)(i).
"Permitted Common Stock Issuances" means (i) shares of Common Stock or
options issuable under the Corporation's existing stock option plans and
401(k) plans, so long as such shares issued and outstanding under these plans
do not exceed fifteen percent (15%) issued and outstanding of the capital
stock of the Corporation on a fully diluted basis; (ii) shares of Common Stock
issuable upon conversion of the Note, (iii) warrants issuable upon prepayment
of the Note and Common Stock issuable upon exercise thereof; (iv) shares of
Common Stock issuable upon conversion of the Convertible Stock, and (v) shares
of Common Stock issuable upon exercise of warrants of the Corporation
outstanding on the date hereof.
"Principal Stockholders" shall mean each of the Corporation's
Stockholders owning five percent (5%) or more of the Corporation's issued and
outstanding capital stock on a fully diluted basis.
"Qualified Public Offering" means a secondary public offering of the
Corporation's stock which results in net proceeds to the Corporation of at
least $15,000,000.
"Warrants" means the warrants issued upon payment of the Note.
5. Fractional Shares. No fractional Shares will be issued in
------------------
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Warrant
Price then in effect.
6. Other Agreements. This Warrant and the Shares, when issued,
----------------
are subject to the terms and conditions of an Investment Agreement, as amended
and a Stockholders Agreement, each dated as of December 31, 1996, among the
Company and the "Holders" identified therein, and the holder of this Warrant
and the Shares into which it is exercisable is entitled to the benefits and is
subject to the obligations set forth therein which may limit the right of the
holder to transfer this Warrant and such Shares, entitle the holder to receive
certain information from the Company, entitle the holder to certain
registration rights and other rights concerning the sale of the Warrant or
Shares in certain transactions and contain certain other rights and
restrictions.
7. Representations and Warranties. This Warrant is issued and
--------------------------------
delivered on the basis of the following representations and warranties of the
Company:
7.1 Authorization and Delivery. This Warrant has been duly
----------------------------
authorized and executed by the Company and when delivered will be the valid
and binding obligation of the Company enforceable in accordance with its
terms;
7.2 Warrant Shares. The Warrant Shares have been duly authorized and
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reserved for issuance by the Company and, when issued and paid for in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable;
7.3 Rights and Privileges. The rights, preferences, privileges and
---------------------
restrictions granted to or imposed upon the Shares and the holders thereof are
as set forth herein and in the Company's Charter are true and complete copies
of which have been delivered to the original warrant holder; and
7.4 No Inconsistency. The execution and delivery of this Warrant are
----------------
not, and the issuance of the Warrant upon exercise of this Warrant in
accordance with the terms hereof will not be, inconsistent with the Company's
Charter or by-laws, do not and will not contravene any law, governmental rule
or regulation, judgment or order applicable to the Company, and do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the
giving of notice to, the registration with or the taking of any action in
respect of or by, any Federal, state or local government authority or agency
or other person.
8. Modification and Waiver. This Warrant and any provision hereof
-----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
9. Notice of Expiration. The Company shall give notice of expiration
--------------------
of this Warrant to Holder sixty (60) days prior to the end of the term.
10. Notices. Any notice which is required or permitted to be given
-------
pursuant hereto shall be given in the manner provided in the Investment
Agreement.
11. Binding Effect on Successors. This Warrant shall be binding upon
----------------------------
any corporation succeeding the Company by merger or consolidation, and all of
the obligations of the Company relating to the Shares issuable upon the
exercise of this Warrant shall be as set forth in the Company's Charter and
the Company's by-laws (each as amended from time to time) and shall survive
the exercise and termination of this Warrant and all of the covenants and
agreements herein and in such other documents and instruments of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.
The Company will, at the time of the exercise of this Warrant, in whole or in
part, upon request of the holder hereof but at the Company's expense,
acknowledge in writing its continuing obligation to the holder hereof in
respect of any rights (including, without limitation, any right to
registration of the Shares issuable upon exercise of this Warrant) to which
the holder hereof shall continue to been titled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the holder hereof in respect of such rights.
12. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
13. Governing Law. This warrant shall be construed and enforced in
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accordance with, and the rights of the parties shall be governed by, the laws
of the state of Texas
IN WITNESS WHEREOF, the undersigned, being duly authorized, has executed
and delivered this Warrant as of this day and year set forth at the beginning
of this Warrant.
THE QUIZNO'S CORPORATION, a Colorado corporation
By:
Its: _________________________
EXHIBIT A-1
Notice of Exercise
To: The Quizno's Corporation
1. The undersigned hereby elects to purchase shares of Common
Stock of THE QUIZNO'S CORPORATION pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or, subject to compliance with the
restrictions on transfer set forth in Section 7 of the Warrant, in such other
name or names as are specified below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
Signature
(Name of Signatory)
By:
Its:
Date:
EXHIBIT A-2
Notice of Exercise
To: The Quizno's Corporation
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement on Form S , filed , , the
undersigned hereby elects to purchase shares of Common Stock of the
Company (or such lesser number of shares as may be sold on behalf of the
undersigned at the Closing) pursuant to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a
stock certificate representing such shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
__________________________
Signature
Date: